3 reasons to buy Zipcar IPO (Ticker:ZIP)

The concept of renting a car that’s parked on the side of the road makes suburban Americans knit their brows, but it probably won’t for long. Here are three reasons to consider adding stock in Zipcar’s IPO (ZIP) to your portfolio.

After Zipcar (NASDAQ:ZIP) filed for an IPO last June, the company got a $21 million cash infusion from private investors. That temporarily shelved plans to go public, but now, in an amended IPO filing, it looks like Zipcar’s IPO is back on. Here are three reasons to consider adding the stock to your portfolio:

1) Redefining transportation. The concept of renting a car that’s parked on the side of the road for a hour sounds downright bizarre to most Americans. I’d go so far as to say it feels European, which is one step beyond bizarre. But in my experience, the stranger the idea, the more potential it has for success (the iPad jumps to mind as a great example). And, in the midst of a global energy crunch brought on by war, radiation scares and rampant commodity inflation, the timing couldn’t be better for Zipcar to thrust itself deeper into public consciousness.

The fact is, owning a car is damn expensive. Zipcar presents a pay-as-you-go alternative that could appeal to more and more city dwellers and college kids who are looking to trim expenses in the face of rising costs. Already, Zipcar operates in 14 metropolitan areas and on more than 230 college campuses. A starter plan in Chicago costs $60 a year (after paying the $25 application fee). From there on out, you’ll pay just $7.50 to $10.25 an hour to rent a car and return it to the same spot you started at. “Our revenue has grown from $30.7 million in 2006 to $186.1 million in 2010,” the company writes in its amended S-1 Filing. Zipcar currently claims 560,000 members. The publicity from an IPO, coupled with rising energy costs might be enough to quickly push up Zipcar’s membership numbers to critical mass.

2) Pocketbook management. For a company that’s been in the game for more than a decade, you’d like to see profitability. That’s not the case for Zipcar (yet). Still, proceeds from their IPO should push Zipcar a lot closer to the promised land. The company plans to use proceeds from its IPO to pay down debt – a lot of which was incurred after the purchase of U.K. competitor Streetcar. With the leftover money, Zipcar will look at ways to expand its business and improve its margins. Last year, Zipcar generated revenue of $186.10 million, with a net loss of $14.12 million. That brings the company’s total debt to $65.4 million. If ZIP shares price at the upper end of the $14 to $16 range, the company and its investors could pull in $133 million. Relieving Zipcar’s debt burden will immediately increase margins and give the company capital to further improve operations and expand its reach.

3) Industry growth: Zipcar’s careful not to over-deliver on promises. “We expect to incur a net loss in 2011,” the company writes. “We do not know if our business operations will become profitable or if we will continue to incur net losses in 2012 and beyond.” And yet, the company seems to be methodically scaling up its business in the right ways, focusing first a few key markets in the U.S. (Boston, New York and Washington, D.C.), then fanning the model out across North America.

Now, the focus is on Europe. With its acquisition of London-based Streetcar, Zipcar hopes to expand into surrounding countries, gobbling up new members and dotting high-density cities with their cars. Growth should be rapid. In North America alone, Frost & Sullivan estimate revenue from car sharing programs will increase from $253 million in 2009 to $3.3 billion in 2016. The pie is getting bigger, and Zipcar’s perfectly positioned to gobble it up – here and across the pond.

1 thought on “3 reasons to buy Zipcar IPO (Ticker:ZIP)”

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